Data Analytics

Why Nonprofits Need to Implement Data Analytics Solutions

Analytics tools help nonprofits target their donors, conduct better outreach and determine what is and is not working with fundraising and operations.

Phil Goldstein

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Phil Goldstein is a former web editor of the CDW family of tech magazines and a veteran technology journalist.

Giving Tuesday remains a hugely popular day for nonprofit organizations to raise money and awareness for the causes they support. The annual day devoted to philanthropy, which fell on Nov. 27 this year, produced about $380 million in donations for charities from roughly 4 million people, according to organizers. That’s a 27 percent increase from 2017.

Yet nonprofits need to sustain themselves throughout the entire year. To do so, they need to be efficient about their operations and donor outreach. Data analytics tools can help on those fronts, and recent research indicates that such solutions are needed at nonprofits.

According to the Salesforce Nonprofit Trends Report, released earlier this year, more than half of nonprofits (53 percent) find it easy to collect program data. However, putting that data into action is more complicated. Fewer than half (47 percent) say it is easy to analyze that data, leading to a wide range of struggles when it comes to tracking and quantifying things like impact and performance.

Just 41 percent say they find it easy to have data power the overall impact of programs. And despite the fact that mobility is becoming more important to nonprofits with each passing year, only 29 percent say they can easily capture and access data from a mobile device. This shows the importance of analytics tools for nonprofits, but only 45 percent currently use analytics, according to the report, with an additional 30 percent planning to use such tools within two years.

How Analytics Can Benefit Nonprofits

As BizTech has reported, there are numerous reasons for nonprofits to adopt analytics tools. Consultancy Grant Thornton notes that data analytics is a “continuous, iterative exploration and an investigation of past business performance to gain insight and drive business planning for the future.”

Nonprofits can use analytics to “streamline operations, increase cost efficiency, determine and optimize financial margin by program, model and forecast performance (e.g., membership trends, donor trends, resource needs and revenue expectations), improve the budgeting process, and enhance overall mission effectiveness,” Grant Thornton notes.

Such solutions can provide significant benefits to nonprofits, including the ability to measure return on investment. Lawrence Henze, principal consultant of Target Analytics, a division of nonprofit software and services firm Blackbaud, says that analytics tools show nonprofits what they are doing well and identifies programs that need to be improve.

“The desire to improve indicates that change is necessary, and organizations that use analytics to thoughtfully inform and embrace change greatly enhance the potential for positive ROI,” Henze writes on npEngage. “So change is inevitably at the heart of strong ROI, and organizations that understand that from the beginning fare much better than those that battle change throughout the implementation process.”

Greg Hagin, Ian Swedish and Adam Miller of CCS Fundraising say that analytics can also help nonprofits figure out the best prospects to engage to make a donation. Writing in the Philadelphia Business Journal, they note that “modeling can be used to examine donor demographics, giving data, and interactions with an organization to predict future giving behaviors of potential donors.” Wealth screening and publicly available information can then be used to determine the prospects with the most money to potentially donate.

“Used together these tools can help an organization narrow the scope of the prospect database and identify prospects for assignment to development staff, make more informed donation requests, and identify new prospects to fill the donor pipeline,” they write.

Grant Thornton notes that analytics can also help strengthen an organization’s membership recruitment and fulfillment operations. Traditionally, nonprofits have purchased lists of names in the target market and sent communications deep into that list, as well as their existing membership base.

However, instead of hoping that blunt approach will yield new members, nonprofits can use data analytics to analyze various factors, activities and characteristics in concert to determine how they relate to and affect each other.

“This enhanced approach enables organizations to generate an optimal number of engaged members in a fiscally prudent manner,” Grant Thornton says. “Using data analytics, planning exercises can take into account a more complete set of factors — e.g., membership outreach yield, cost per outreach, market penetration, demographic factors and changes, membership engagement, and membership product cross-selling.”

Such an approach can improve “targeting, new member sign-ups and member renewals, as well as to identify future member needs and services — all while keeping the cost and return on investment in mind,” the consultancy says.

There are numerous other benefits to analytics. Hagan, Swedish and Miller note that the tools can be used to track and analyze nonprofit staff activity, and motivate them through data-driven performance benchmarks. “Basic activity metrics including donor visits, solicitations, gifts received, and new prospects will provide the baseline health of the donor pipeline and enable revenue forecasting,” they write.

Analytics can also help improve donor relations by providing more quantifiable data to donors on the impact of their “investment,” which may then motivate them to give again, Hagan, Swedish and Miller note. “Organizations must not only make data measurement a priority, but also understand the various ways that impact data can be effectively communicated,” they add.

Steps Nonprofits Can Take to Implement Data Analytics Tools

There are several practical steps nonprofits can take to put data analytics tools in place. Grant Thornton advises nonprofits to do the following:

Invest in technology, such as data warehouse and analytical platforms, to capture desired data and create correlations. Nonprofit IT leaders can work with trusted partners to identify which tools are the best fit for their organization’s needs.
Nonprofit leaders should “establish performance metrics beyond financial measures and agree on mission-driven indicators.”
Organizations must “acknowledge the human element and the importance of effective change management in implementing new technology tools.”
Nonprofits should “build collaboration into the process in order to view the organization as a whole rather than as a collection of departments and interests.”
Organizations should also seek to develop data analytics and business intelligence skills in-house or hire personnel to bring analytics skills into the organization.
Nonprofits must “commit to act on the trends and insights discovered through data analytics.”
Organizations should create “a cross-functional steering committee that can set aside other biases in order to act on the analysis.”
Such investments need to be made wholeheartedly, and nonprofits should “dedicate organization-wide focus to an ongoing data analytics program, as opposed to conducting a one-time exercise.”